In our previous articles, we shared the summary of GST Circular 159 and the summary of GST Circular 160 in detail, in this article, we will discuss GST Circular 161 which talks about clarification related to the export of services-condition (v) of section 2(6) of the IGST Act 2017.

The first clarification of GST Circular 161 is – Condition (v) of section 2(6) Export of Service not treated when (v) the supplier of service and the recipient of service are establishments of a distinct person in accordance with Explanation 1 in section 8.

Here, Export of Service means:

• The supplier of service is located in India;
• The recipient of service located outside India;
• The place of supply services is outside India;
• Payment for such services will be received in convertible foreign exchange;

Note: An establishment of a person in India and an establishment of a person outside India are considered as establishments of distinct persons so cannot be treated as export of services.

Example

1. In case of a foreign company having an office OR branch in India:

There was a doubt regarding the nature of the transaction in case of export of service by the Indian branch of the foreign company to its head office in another country. The circular has stated that this transaction can also be classified as an ‘export of service’.

2. An Indian company having a branch or office outside India:

There was the same doubt prevailing about the transaction type of an Indian company that provided its services to its own branch or office outside India. But the circular states that this transaction also falls under the category of export of services. 

Hence, the circular sheds light on the points that – supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company would not be barred by the condition (v) of the sub-section (6) of section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as supply between mere establishments of distinct persons under Explanation 1 of section 8 of IGST Act 2017. 

However, this will stand true only if the company is incorporated in India under the Companies Act, 2013 (and thus qualifies as a ‘company’ in India as per Companies Act), to the establishments of the said foreign company located outside India (incorporated outside India).

Similarly, the supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would not be treated as supply to merely establishments of distinct persons under Explanation 1 of section 8 of IGST Act 2017. Such supplies, therefore, would qualify as export of services, subject to fulfilment of other conditions as provided under sub-section (6) of section 2 of IGST Act.

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